BOJ Holds Policy Before Greek Vote With Eye on Markets: Economy

The Bank of Japan (8301) kept the size of its asset-purchase fund unchanged two days before a Greek election that may determine whether Europe’s crisis worsens, and said it will pay “particular” attention to global markets.

The central bank kept its asset-purchase fund at 40 trillion yen ($507 billion) and a credit lending program at 30 trillion yen, matching the forecasts of 13 economists surveyed by Bloomberg News. The decision was announced in Tokyo today.

Any deepening in Europe’s turmoil risks sparking a surge in the yen that undermines what the BOJ said today was a return to a “moderate recovery path” for Japan. With Toyota Motor Corp. (7203) Chief Financial Officer Satoshi Ozawa calling the exchange rate a “large burden” today, BOJ Governor Masaaki Shirakawa may come under pressure to add stimulus.

“If the European situation worsens and Greece exits the euro, or if the U.S. economy slows, those things could lead to the yen’s gains, prompting the BOJ to ease more,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo.

Finance Minister Jun Azumi said today that the Group of 20 should send a strong message on tackling Europe’s crisis when leaders meet in Mexico. Greece’s election in two days looms as the next flashpoint after Spanish bond yields surged this week.

The Japanese central bank kept its benchmark interest rate between zero and 0.1 percent and the amount of monthly bond purchases at 1.8 trillion yen. It raised its evaluation of the economy, citing an increase in domestic demand spurred by reconstruction spending to recover from last year’s earthquake.

Yen Gains

The yen traded at 78.96 per dollar as of 4:43 p.m. in Tokyo, up almost 6 percent since mid-March. The Nikkei 225 Stock Average was little changed at the 3 p.m. close and the MSCI Asia Pacific Index added 0.6 percent as of 3:21 p.m. in Tokyo on optimism central banks around the world will take steps to stimulate growth.

Bank of England Governor Mervyn King unveiled measures to fight an escalation of Europe’s debt crisis yesterday, noting that the case for more stimulus in the U.K. “is growing.” In addition to looser policy, he said the BOE will activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating within weeks to boost lending in the economy.

“Banks are at risk of future losses from a further downturn in the economy and exposures to the euro area,” he said. “Not only have the euro-area problems escalated to the point where exit for Greece and other periphery countries is the subject of widespread speculation, but signs of a slowing in China, India, and other previously buoyant emerging economies, such as Brazil, are appearing daily.”

Stable Markets

Shirakawa, speaking to reporters in Tokyo after today’s meeting, said central banks are always in close contact and share the view that financial stability is important. He also said Japan’s financial markets are the most stable among developed nations.

In the U.S., industrial production probably cooled in May as businesses trimmed investment plans and fewer motor vehicles rolled off assembly lines as sales slowed, economists said before a report due today.

Output at factories, mines and utilities increased 0.1 percent after April’s 1.1 percent advance that was the biggest since December 2010, according to the median forecast of 79 economists surveyed by Bloomberg News.

Another U.S. report today is projected to show consumer sentiment declined in June. The Thomson Reuters/University of Michigan preliminary index of confidence dropped to 77.5 from a final May reading of 79.3, a four-year high, according to the Bloomberg survey median.

G-20 Meeting

Spain became the fourth member of the euro area to seek a bailout last week. Greece is due to hold elections on June 17 that may determine its future in the currency zone, and leaders of the G-20 will hold a summit in Mexico the following day.

The International Monetary Fund said this week that the BOJ’s asset-buying fund could be enlarged “substantially” to help attain the bank’s target of 1 percent inflation by the end of 2014, as the nation seeks to shake off persistent deflation. Purchases of assets including corporate notes and equities could stimulate activity, the Washington-based fund said.

JPMorgan Chase & Co. and BNP Paribas SA say the central bank may add to easing in July, while Morgan Stanley has forecast more purchases of exchange-traded funds and real-estate investment trusts.

The BOJ today made no move to address disruptions in their shorter-date purchases of government debt, by either lengthening the maturity of bonds they buy or shifting to other types of assets.

Japan’s government has nominated two economists to the central bank’s board who previously signaled support for stimulus: Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co.

The bank will review its price outlook of 0.7 percent for the year starting in April 2013 in July. Sato forecasts a 0.3 percent decline and Kiuchi sees a rise of the same amount.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

Enlarge image

BOJ Holds Off From Extra Stimulus as Officials Monitor Europe

Tomohiro Ohsumi/Bloomberg

A pedestrian walks past the Bank of Japan headquarters in Tokyo. The International Monetary Fund said this week that the BOJ’s asset-buying fund could be enlarged “substantially” to help secure a target of 1 percent inflation by the end of 2014, as the nation seeks to shake off persistent deflation.

A pedestrian walks past the Bank of Japan headquarters in Tokyo. The International Monetary Fund said this week that the BOJ’s asset-buying fund could be enlarged “substantially” to help secure a target of 1 percent inflation by the end of 2014, as the nation seeks to shake off persistent deflation. Photographer: Tomohiro Ohsumi/Bloomberg

0:23

June 15 (Bloomberg) -- The Bank of Japan kept the size of its asset-purchase fund unchanged two days before a Greek election that may determine whether Europe’s crisis worsens, and said it will pay “particular” attention to global markets. (Source: Bloomberg)